PP 7767/09/2010(025354)

30 August 2010
RHB Research
Corporate Highlights
Malaysia
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

R e su lts N ot e
30 August 2010
MARKET DATELINE

Perwaja Holdings Share Price

Fair Value
:
:
RM1.12
RM1.24
In Line, Expecting Performance To Pick Up From 4Q Recom : Outperform
(Maintained)

Table 1 : Investment Statistics (PERWAJA; Code: 5146) Bloomberg: PERH MK

Net FD EPS Net
FYE Turnover Profit EPS EPS Growth PER# C.EPS* P/NTA Gearing ROE GDY
Dec (RMm) (RMm) (sen) (sen) (%) (x) (sen) (x) (x) (%) (%)
2009A 1,571.2 -115.5 -20.6 -13.0 n.m. n.m. - 0.7 0.9 -12.4 -
2010F 2,164.7 64.8 11.6 12.2 >100 9.3 - 0.6 0.9 6.5 -
2011F 2,461.4 75.8 13.5 13.7 12.6 8.2 - 0.6 0.8 7.0 -
2012F 2,480.6 94.6 16.9 16.3 19.1 6.9 - 0.5 0.6 8.1 -
Main Market Listing / Trustee Stock / Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates

RHBRI Vs. Consensus

♦ In line. 1HFY12/10 core net profit of RM32.9m came in within our Above -
expectation, at 51% of our full-year estimate. In Line -
Below -
♦ YoY. 1HFY12/10 returned to the black with a core net profit of RM32.9m
(vs. a net loss of RM141.4m a year ago) due to: Issued Capital (m shares) 560.0
Market Cap (RMm) 627.2
1. Margin expansion arising from higher production volume, better selling Daily Trading Vol (m shs) 0.3
prices, and lower input costs. Recall, Perwaja’s input, in particular, iron 52wk Price Range (RM) 0.95 – 1.72
ore that was acquired at high cost prior to the financial crisis was only Major Shareholders: (%)
run down in end-2QFY12/09; and Kinsteel 37.3
Equal Concept 31.4
2. A 26.5% decline in finance costs.

♦ QoQ. Despite revenue increasing by 24.5% to RM456.2m, 2QFY12/10 core FYE Dec FY10 FY11 FY12
net profit declined by 54.7% to RM10.3m. This was mainly due to: EPS Revision (%) - - -
Var to Cons (%) - - -
1. Margin erosion arising from lower average selling price while input cost
remained high; and Share Price Chart

2. A 14.7% qoq increase in finance costs.

♦ Performance to recover from 4Q. While we anticipate Perwaja to report

a weak 3Q, we believe performance will likely improve from 4Q onwards,
as: 1) steel consumption is seasonally stronger in 4Q on the back of
worldwide seasonal stock replenishing activities; and 2) concerns on
overcapacity are likely to ease in the near term, with recent announcement
made by several key steel players in several countries to cut production in
3Q, coupled with recent positive news flows on steel sector consolidation in Relative Performance To FBM KLCI

China will boost buying sentiment of steel products.

FBM KLCI
♦ Risks. The risks include: (1) Global steel consumption recovers later than
expected; (2) Higher-than-expected production costs, which meanslower-
than-expected profitability; and (3) Concerns on overcapacity subsides later
than expected. Perwaja Holdings

♦ Earnings forecasts. Maintained for now.

♦ Investment case. Indicative fair value is RM1.24 based on 9x FY12/11

fully-diluted EPS of 13.7 sen, in line with our 1-year forward target PER of Chye Wen Fei
(603) 92802172
9x for the steel sub-sector. Maintain Outperform, as valuation remains
chye.wen.fei@rhb.com.my
compelling.

Please read important disclosures at the end of this report.

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Table 2: Earnings Review (YoY Cumulative)

FYE Dec 2009 2010 % YoY Observations/ Comments
(RMm) 6M 6M Chg
Revenue 750.8 838.9 11.7 Due to higher selling prices and sales volumes.
Operating income/ (loss) -116.1 71.3 >100 Margin expansion arising from: (1) Better selling prices; and (2)
Better economies of scale on the back of higher utilisation rate.
Finance costs -52.2 -38.4 -26.5 Due to lower cost of financing.
Pretax profit/ (loss) -168.2 32.9 >100 Filtered down from operating profit.
Taxation 26.9 0.0 Nm
Core net profit/ (loss) -141.4 32.9 >100 Filtered down from pretax profit.
Other comprehensive income 0.0 0.1 Nm
Net profit/ (loss) -141.4 33.1 >100
Core EPS (sen) -25.2 5.9 >100 Filtered down from pretax profit.
EPS (sen) -25.2 5.9 >100

Operating margin (%) -15.5 8.5 24.0 pts

Pretax margin (%) -22.4 3.9 26.3 pts
Core net profit margin (%) -18.8 3.9 22.8 pts
Effective tax rate 16.0 0.0 -16.0 pts

Table 3: Earnings Review (QoQ)

FYE Dec 2010 2010 % QoQ Observations/ Comments
(RMm) 1Q 2Q Chg
Revenue 373.7 465.2 24.5 Due to higher sales volume that more than offset lower average
selling price.
Operating profit/ (loss) 40.5 30.8 -24.1 Margin erosion arising from : 1) lower average selling price;
and 2) higher input costs, in particular, iron ore.
Finance costs -17.9 -20.5 14.7 Net debt increased to RM952m from RM849.6m in the previous
quarter.
Pretax profit/ (loss) 22.7 10.3 -54.7 Hit further by higher finance costs.
Taxation - - -
Core net profit/ (loss) 22.7 10.3 -54.7 Filtered down from pretax profit.
Other comprehensive income 0.1 0.1 0.0
Net profit/ (loss) 22.7 10.3 -54.6
Core EPS (sen) 4.0 1.8 -54.7
EPS (sen) 4.1 1.8 -54.6

Operating margin (%) 10.8 6.6 -4.2

Pretax margin (%) 6.1 2.2 -3.9
Core net profit margin (%) 6.1 2.2 -3.9
Effective tax rate (%) - - -

Table 4: Earnings Forecasts Table 5: Forecast Assumptions

FYE Dec 2009A 2010F 2011F 2012F 2010F 2011F 2012F

Revenue 1,571.2 2,164.7 2,461.4 2,480.6 Annual Capacity ('000 tonnes)

Growth (%) -32.3 37.8 13.7 0.8 DRI 1,650 1,800 1,800
Billet 1,950 2,600 2,600
EBITDA -129.2 212.8 222.2 234.9
EBITDA margin -8.2 9.8 9.0 9.5 Production Volume ('000 tonnes)
DRI 1,450 1,500 1,500
Depreciation & amortisation 73.9 -70.4 -68.4 -66.5 Billet 1,100 1,200 1,200
Net interest expense -87.3 -77.6 -78.0 -73.8
Average Selling Price (US$/tonne)
Pretax profit -142.5 64.8 75.8 94.6 DRI 380 400 400
Tax expense 27.0 0.0 0.0 0.0 Billet 515 525 530
Net Profit -115.5 64.8 75.8 94.6
Source: Company data, RHBRI estimates

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad
(previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The
opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or
be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be
construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any

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manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons
may from time to time have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives
of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate
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“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors,
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This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect
information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based
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The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on
higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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